Headlines Discount Enormous Oil Play

Protests have dogged the Keystone pipeline project to bring oil from Canadian sands to the US, which means the market is not pricing in the potentially massive profits, says Roger Conrad in this exclusive interview with MoneyShow.com.

Roger, there has been a big controversy recently in the United States.and I know here in Toronto, people are very interested in it, about Keystone XL, which is a pipeline going from the oil-sands project in Alberta into the United States that will deliver oil and gas to the United States. Is that the plan for it?

Yes, this is potentially a tremendous project, that could employ over 100,000 people in the United States. It's something like a $20 billion investment, and it will bring for the first time significant amounts of Canadian oil from the tar sands down to US refineries and really open up a major new avenue for development in the tar-sands region. As you pointed out it is hugely controversial.

So, let's talk about that a little bit. Environmentalists have really been protesting very strongly. I think-I forgot the name of the guy with NASA who basically said that if this project goes through, the amount of carbon that it will put into the atmosphere will basically prevent us from ever being able to do anything about global warming. There were protests at the White House, people were arrested, and I think .

The Dalai Lama actually.

The Dalai Lama actually has signed a petition against it. You know, I mean it's just getting a lot of attention. Now what is actually happening on the policy front in this?

Well on the policy front-and this I think really set off a lot of the latest round of protesting-the State Department issued its ruling on environmental grounds and said that TransCanada (TRP), the developer of the pipeline, has mitigated their concerns.

So if there are problems, they said it will be easy to contain them because of the safeguards put in place. Of course, a lot of people disagree with that. I think.

And then Steven Chu, the energy secretary of the US, happens to be another Nobel Prize winner. I think he gave it a favorable review didn't he?

Yes, you know, and in fact this is very similar to this controversy about nuclear energy in the United States. Whereas the Obama administration, led by Steven Chu, the energy secretary, very much pro developing some of these new designs-particularly the AP1000, which the NRC has approved on safety grounds now and seems to be heading for a final approval.

And then, of course, the major junk of the Democratic party and a lot of several Republicans I think as well coming out against it. Politics makes strange bedfellows, and the Keystone pipeline is definitely a great example of that where you see the governor of Nebraska, a very staunch Republican, joining with Al Gore against it.

Well, not in my backyard. I think they were afraid that it would damage some of the water there.

And so the environmental opposition to this is really two-track. One is the pipeline route and whether that will contaminate some source of drinking water or farms or wherever it passes. Then the other part of it, of course, is that by unlocking so much oil-sands capacity and shipping it in the United States, you're really opening up that whole region to very rapid development.

And also the process of doing it is supposedly very carbon-intensive as well, isn't it?

Well oil sands is kind of a mining operation more than a drilling operation. You really have to get in there, and it's a mining and chemical operation and that requires a lot of electricity. So if you count that towards the generation of carbon and so forth, of course you've got pretty high levels.

Now, I think one of the fallacies that the opponents are putting forth here is that canceling Keystone XL will hold back the development of the oil sands.and that's not happening.

Because they basically said, well if you don't ship pipeline to the United States, we're going to have a pipeline going out to Western Canada and sell it to China, right?

Well there is actually one in the works, and it's being developed by Enbridge (ENB), another major-with TransCanada and Kinder Morgan Energy Partners (KMP), they own the majority of Canadian long-haul pipelines-so it's a huge company, definitely with the wherewithal to do it.

There are environmental opposition in some areas where the pipeline will be going through. But the Canadian government and the provincial authorities, they're very much behind it, so that one looks like it has a very good chance of going through.

Now I think probably both of these pipelines could wind up going through, but again, if Transcanada Keystone is rejected, then it's not going to really matter a whit to how much oil sands are developed.

So very quickly, let's say somebody is very comfortable that this is not going to be a tremendous environmental damage to the country or the world and wants to make some money on it. Could you give us one company that you think would be in a good position?

Well, I think the developer of the pipeline, Transcanada Pipelines. You know, I think one thing we've seen in the market is pricing in a lot of risks, probably even more so than they should be, as a lot of investors try to de-risk their portfolio.

This is a good example of that. Transcanada is not pricing in, I think, the success of this. If they are able to get this project through and start working on it, I think it's tremendous upside for them. So, that would be.